Ramblings of a Silicon Valley Tech Exec on Technology Commercialization and Startups

Monday, November 22, 2010

Small Business vs. Scalable Entrepreneurship

Two weeks ago in my post Education, Entrepreneurship, and Employment we started to distinguish between scalable entrepreneurs (i.e. those seeking to start large businesses) and small business entrepreneurs (i.e. those seeking to start lifestyle or small businesses). What are the similarities and differences between the two? What does this mean in terms of skill sets and education?

At the risk of oversimplifying, let's start with...

Objectives

Scalable: Making a large impact, prospect for significant wealth

Small Business: Supporting self and/or family with an eye to a particular lifestyle

This leads to a...

Strategic Path

Scalable: Identify a business model that can be systematized, scaled up, and ultimately lead to a market leadership position both in scope and share.

Small Business: Identify a business model that can be sustained and defended. The degree to which the business is systematized and scaled up is determined by the lifestyle objective.

Which means one needs the following...

Resources

Scalable: Hiring specialists capable of developing the initial product or service, achieving product/market fit, and sales traction followed by different specialists capable of building scalable business processes and infrastructure able to facilitate growth.

Small Business: Hiring specialists but with a broader set of generalist skills; the proverbial "T-shaped" person.

Which in turn leads to requirements for...

Capital Financing

Scalable: External financing usually from institutional equity investors (e.g. VCs) to get the business to where it can generate sufficient cash to sustain operations and reach its scale objectives, often augmented by institutional debt financing as well.

Small Business: Friends and family money (either equity or loans) to get the business to where it can generate sufficient cash to sustain operations. Lines of credit or small business loans may augment the capital structure.

Which dictates a path for...

Growth

Scalable: External equity financing implies being able to deliver growth rates fast enough to achieve the high levels of return associated with the risk. It also means the company must plan on a liquidity event either in the form of an initial public offering (IPO) or strategic sale.

Small Business: As long as the business generates cash sufficient to meet its expenses plus any external debt financing obligations (if any), the rate of growth is determined by the lifestyle objective.

Which means you will have the following...

Accountability

Scalable: Investors as represented by a board of directors, employees, creditors

Small Business: Owners (self+), employees, creditors, customers

Therefore to succeed, entrepreneurs should have the following....

Critical Business Skills

Scalable: Ability to recognize opportunity, devise a product or service vision powerful enough to attract the specialists, investors, and other resources needed to make the concept a reality, create a scalable business model, acquire customers, and generate the initial momentum towards scale.

Small Business: Ability to recognize opportunity, devise a product or service concept, pull together the initial people, money, and other resources needed, create a sustainable business model, acquire customers, train employees, and operate the business.

While many of the critical skills are the same, there are slight but important differences. These in turn lead to difference with respect to their needs in an...

In short, scalable entrepreneurs need an education that helps them pull together resources and lead a company towards rapid, institutional growth. They will largely be coordinating and working through others. They need skills, not just at the initial startup level, but enough beyond that they can get the company moving up the scaleup path, even if they plan to bring in others to drive the scaling process.

Small business entrepreneurs need a specialist skill in the principle area of the businesses value proposition, plus a generalist education that helps them sustain the healthy operation of the business. They will often be much more hands on in the delivery of the product or service to customers.